So will it help, or not?
The global markets seem to think that the Paulson plan will be a good thing. Since the idea was first proposed, global financial stocks have appreciated by about 900 billion dollars. While that’s still a long way from the 3 trillion or so that has been lost since last summer, it’s still a pretty good piece of change.
So on first blush, the plan is a success. It’s big enough, and systematic enough, to make a real difference. But can it help us take the next step to recovery?
That depends on what happens in the real economy. Up until now there has been a disconnect: markets have been predicting a nasty downturn while the global economy keeps on chugging, even if at a slower pace. This plan helps the banks facilitate this continued growth.
The plan isn’t perfect: some bankers will remain in business who really shouldn’t. But “payback” is not a sound financial policy. And an old western saying goes that before you ride out for revenge, be sure to dig two graves. Paulson’s outline should keep both the banks and the economy alive.
Douglas R. Tengdin, CFA
Chief Investment Officer
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